SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission file number:
DECEMBER 31, 1996 0-23488
CIBER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-2046833
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5251 DTC PARKWAY
SUITE 1400
ENGLEWOOD, CO 80111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Telephone Number: (303) 220-0100
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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As of December 31, 1996, there were 18,689,390 shares of the Registrant's common
stock ($0.01 par value) outstanding.
CIBER, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Statements of Operations
Three and six months ended December 31, 1996 and 1995 2
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996 3
Consolidated Statements of Cash Flows
Six months ended December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 13
SIGNATURES 14
1
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- ---------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1995(1) 1996 1995(1) 1996
------- ------- ------- --------
Revenues $43,066 $59,720 $85,009 $113,750
Salaries, wages and other direct costs 29,805 41,082 57,964 77,475
Selling, general and administrative expenses 9,670 12,919 19,706 25,005
Amortization of intangible assets 456 607 898 1,129
Merger costs - 596 - 1,218
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Operating income 3,135 4,516 6,441 8,923
Interest income 162 216 192 439
Interest expense (82) - (186) -
------- ------- ------- --------
Income before income taxes 3,215 4,732 6,447 9,362
Income tax expense 273 2,343 1,482 5,179
------- ------- ------- --------
Net income $ 2,942 $ 2,389 $ 4,965 $ 4,183
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------- ------- ------- --------
Pro forma information (Note 1):
Historical net income $ 2,942 $ 2,389 $ 4,965 $ 4,183
Pro forma adjustment to income tax expense (963) 420 (1,023) 1,308
------- ------- ------- --------
Pro forma net income $ 1,979 $ 2,809 $ 3,942 $ 5,491
------- ------- ------- --------
------- ------- ------- --------
Pro forma income per common and common
equivalent share $ 0.10 $ 0.14 $ 0.21 $ 0.28
------- ------- ------- --------
------- ------- ------- --------
Weighted average common and common
equivalent shares 19,006 20,095 18,483 19,962
------- ------- ------- --------
------- ------- ------- --------
(1) Restated for poolings of interests - See Note 2.
See accompanying notes to consolidated financial statements.
2
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
IN THOUSANDS, EXCEPT SHARE DATA 1996(1) 1996
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $17,465 $11,398
Accounts receivable 37,671 44,048
Inventories - 349
Prepaid expenses and other assets 760 2,141
Income taxes - 1,604
Deferred income taxes 417 -
------- -------
Total current assets 56,313 59,540
------- -------
Property and equipment, at cost 5,475 7,645
Less accumulated depreciation and amortization (2,745) (3,277)
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Net property and equipment 2,730 4,368
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Intangible assets, net 12,801 21,588
Deferred income taxes 458 521
Other assets 964 1,038
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Total assets $73,266 $87,055
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------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables $ 1,555 $ 4,485
Accrued compensation 8,242 8,573
Other accrued expenses and liabilities 2,741 3,892
Income taxes payable 642 -
Deferred income taxes 467 1,861
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Total current liabilities 13,647 18,811
Long-term acquisition costs payable 200 200
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Total liabilities 13,847 19,011
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Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued - -
Common stock, $0.01 par value, 40,000,000 shares authorized,
18,403,000 and 18,689,000 shares issued and outstanding 184 187
Additional paid-in capital 37,248 44,567
Retained earnings 21,987 23,290
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Total shareholders' equity 59,419 68,044
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Commitments and contingencies
Total liabilities and shareholders' equity $73,266 $87,055
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(1) Restated for poolings of interests - See Note 2.
See accompanying notes to consolidated financial statements.
3
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
IN THOUSANDS 1995(1) 1996
-------- --------
OPERATING ACTIVITIES:
Net income $ 4,965 $ 4,183
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,221 1,765
Deferred income taxes (541) 872
Compensation expense related to stock and stock options 9 22
Changes in operating assets and liabilities, net of the
effects of acquisitions:
Accounts receivable (2,367) (3,100)
Inventories - 226
Intangible assets (127) (690)
Other current and long-term assets (542) (1,337)
Trade payables 756 1,095
Accrued compensation 292 94
Income taxes payable (1,813) (2,246)
Other accrued expenses and liabilities (148) 593
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Net cash provided by operating activities 1,705 1,477
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INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (956) (6,071)
Purchases of property and equipment (670) (1,471)
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Net cash used in investing activities (1,626) (7,542)
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FINANCING ACTIVITIES:
Net payments on bank lines of credit (5,500) (1,900)
Proceeds from sales of common stock, net 19,498 1,116
Payments on notes payable (110) (1,096)
Current portion of tax benefit from exercise of stock options 1,600 2,717
Distributions by merged company (1,382) (839)
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Net cash provided by (used in) financing activities 14,106 (2)
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Net increase (decrease) in cash and cash equivalents 14,185 (6,067)
Cash and cash equivalents, beginning of period 3,908 17,465
------- -------
Cash and cash equivalents, end of period $18,093 $11,398
------- -------
------- -------
Supplemental cash flow information:
Cash paid for interest $ 189 $ -
Cash paid for income taxes 2,169 3,722
(1) Restated for poolings of interests - See Note 2.
See accompanying notes to consolidated financial statements.
4
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of CIBER, Inc. and
subsidiaries ("CIBER" or the "Company") have been prepared without audit.
Certain information and note disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Current Report on Form 8-K dated December 12,
1996. However, such audited consolidated financial statements included in Form
8-K have not been restated for the Technology Management Group, Inc. and
Technical Support Group, Inc. poolings of interests discussed in note 2. In the
opinion of management, these unaudited consolidated financial statements include
all adjustments necessary for a fair presentation of the financial position and
results of operations for the periods presented.
Pro forma net income has been presented because certain companies, which have
merged with CIBER in business combinations accounted for as poolings of
interests, were S corporations and generally not subject to income taxes.
Accordingly, no provision for income taxes has been included in the consolidated
financial statements for the operations of these companies prior to their merger
with CIBER. The pro forma adjustment to income taxes has been computed as if
the merged companies had been taxable entities subject to income taxes for all
periods prior to their merger with CIBER at the marginal rates applicable in
such periods. In addition, the pro forma adjustment to income tax expense has
been affected to exclude the one-time tax expense or benefit resulting from
changes in the tax status of these merged companies.
The computation of weighted average common and common equivalent shares includes
the shares and options issued in connection with business combinations accounted
for as a pooling of interests as if they had been outstanding for all periods
prior to the merger.
Inventories, which consist of computer networking equipment and supplies, are
stated at the lower of cost or market using the first-in, first-out method.
(2) POOLINGS OF INTERESTS
Since June 30, 1996, the following companies have merged with CIBER in business
combinations accounted for as poolings of interests. Accordingly, the Company's
financial statements have been restated for all periods prior to the respective
merger to include the results of operations, financial position, and cash flows
of the merged companies.
TECHNOLOGY MANAGEMENT GROUP, INC. ("TMG") - On November 26, 1996, the Company
issued 242,179 shares of its common stock and granted options for 163,007 shares
of the Company's common stock (at an aggregate exercise price of $547,000) in
exchange for all of the outstanding shares of common stock and the cancellation
of options of TMG. The CIBER stock options replaced existing TMG stock options.
TMG, located in Seattle, Washington, provides consulting services similar to
CIBER.
TECHNICAL SUPPORT GROUP, INC. ("TSG") - On November 27, 1996, the Company issued
370,376 shares of its common stock and assumed all of TSG's liabilities in
exchange for all of the assets of TSG. TSG, located in Chicago, Illinois,
provides consulting services similar to CIBER. Prior to its merger with the
Company, TSG had elected S Corporation status for federal income tax purposes
and was generally not subject to income taxes. Upon TSG's merger with CIBER,
CIBER has recorded a one-time income tax expense of $515,000 to record the net
deferred tax liability of TSG at the merger date.
5
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Revenues, net income, and pro forma net income of CIBER and of TMG and TSG
collectively, prior to their mergers with CIBER, and on a combined basis, were
(in thousands):
TMG AND
CIBER TSG COMBINED
-------- ------- --------
Six Months ended December 31, 1996 (1)
Revenues $105,445 $ 8,305 $113,750
Net income 4,094 89 4,183
Pro forma net income 4,982 509 5,491
Three Months ended September 30, 1996
Revenues $ 49,489 $ 4,541 $ 54,030
Net income 1,634 160 1,794
Pro forma net income 2,603 79 2,682
Year ended June 30, 1996
Revenues $172,151 $15,502 $187,653
Net income 9,293 714 10,007
Pro forma net income 8,760 528 9,288
Year ended June 30, 1995
Revenues $130,458 $13,387 $143,845
Net income 4,465 740 5,205
Pro forma net income 4,586 506 5,092
(1) Amounts for TMG and TSG are through the merger dates.
SPECTRUM TECHNOLOGY GROUP, INC. ("SPECTRUM") - On September 3, 1996, the Company
issued 853,116 shares of its common stock in exchange for all of the outstanding
common stock of Spectrum. Spectrum, located in Somerville, New Jersey, provides
management consulting solutions to business problems, specifically in the areas
of data warehousing, data modeling and enterprise architecture, as well as
project management and systems integration services.
During the quarter ended December 31, 1995, Spectrum elected S corporation
status for federal income tax purposes, effective for its tax year ended
December 31, 1995. As an S corporation, Spectrum was generally not subject to
income taxes. As a result of the change in Spectrum's tax status, income tax
expense for the year ended June 30, 1996 includes a one-time tax benefit of
$818,000, resulting from the elimination of Spectrum's net deferred tax
liability. Thereafter, no provision for income taxes is included for the
operations of Spectrum prior to its merger with CIBER. Upon Spectrum's merger
with CIBER, Spectrum's S corporation status was terminated and CIBER has
recorded a one-time income tax expense of $1,202,000 to record the net deferred
tax liability of Spectrum at the merger date.
6
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The following table sets forth certain statement of operations data for each of
the quarters indicated below, which data has been restated to reflect the
poolings of interests with TMG and TSG.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
YEAR ENDED JUNE 30, 1996
Revenues $41,943 $43,066 $48,291 $54,353 $187,653
Operating income 3,306 3,135 3,978 4,140 14,559
Net income 2,023 2,942 2,781 2,261 10,007
Pro forma net income 1,963 1,979 2,583 2,703 9,228
Pro forma income per
common and common
equivalent share $ .11 $ .10 $ .13 $ .14 $ .48
YEAR ENDED JUNE 30, 1995
Revenues $32,057 $33,559 $37,778 $40,451 $143,845
Operating income 2,184 1,835 2,798 1,892 8,709
Net income 1,422 1,315 1,775 693 5,205
Pro forma net income 1,335 1,119 1,629 1,009 5,092
Pro forma income per
common and common
equivalent share $ .08 $ .06 $ .09 $ .06 $ .29
(3) ACQUISITIONS
On December 2, 1996, the Company acquired CIBER Network Services, Inc. ("CNSI"),
which was majority owned by certain officers of the Company, for consideration
of approximately $3.7 million, consisting of 68,631 shares of the Company's
common stock and approximately $1.2 million in cash. In addition, the Company
assumed net liabilities of approximately $800,000, resulting in a total purchase
price of approximately $4.5 million. Additionally, contingent consideration of
up to $2.6 million will be paid to the sellers if CNSI achieves certain
performance objectives in each of the 12-month periods ending October 31, 1997,
1998 and 1999. The contingent consideration, if earned, will be payable at the
sellers' option in the Company's common stock, at the then prevailing market
price, or in cash. This acquisition has been accounted for as a purchase. The
Company has recorded goodwill of approximately $4.5 million, which will be
amortized over 15 years. Any contingent consideration paid will be accounted
for as additional goodwill. For income tax purposes, this acquisition was a
non-taxable transaction. CNSI, which has offices in Edison, NJ, Denver, CO, and
San Francisco, CA, provides local and wide-area networking solutions, including
design, procurement, installation, testing, and maintenance. The results of
operations of CNSI after the acquisition date are included in the Company's
consolidated statement of operations.
Had the acquisition of CNSI occurred at the beginning of the respective periods,
revenues would have been increased by approximately $18.3 million and $8.1
million, for the year ended June 30, 1996 and for the six months ended December
31, 1996, respectively. The effects on pro forma net income and pro forma
income per common share would not have been material.
In July 1996, the Company acquired certain assets, liabilities and all of the
business operations of the Business Systems Development division of DataFocus,
Inc., Fairfax, Virginia, a subsidiary of KTI, Inc. This acquisition has been
accounted for as a purchase. Accordingly, the Company's consolidated financial
statements include the results of operations of this acquired business since the
date of acquisition. Pro forma results of operations have not been presented
because the effects were not material to revenues or net income. The aggregate
purchase price was $4,980,000, of which $4,751,000 has been allocated to
goodwill and $229,000 has been allocated to other net assets. This division
provides Microsoft technology-based computer software consulting services.
7
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
A summary of cash paid for these two acquisitions is as follows:
Goodwill $ 9,226
Fair value of other assets acquired 4,940
Liabilities assumed (5,626)
Value of common stock issued (2,469)
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Cash paid, net of cash acquired $ 6,071
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(4) SHAREHOLDERS' EQUITY
Changes in shareholder's equity during the six months ended December 31, 1996
were (in thousands):
Common stock Additional Total
------------------ paid-in Retained shareholders'
Shares Amount capital earnings equity
------ ------ ---------- -------- -------------
BALANCES AT JULY 1, 1996, AS RESTATED (SEE NOTE 2) 18,403 $184 $37,248 $21,987 $59,419
Issuance of common stock for options exercised 174 2 337 - 339
Sale of common stock under employee stock purchase plan 43 - 700 - 700
Sale of common stock by merged companies - - 77 - 77
Tax benefit from exercise of stock options - - 1,674 - 1,674
Compensation expense related to stock and stock options - - 22 - 22
Termination of S corporation tax status of merged companies - - 2,041 (2,041) -
Acquisitions 69 1 2,468 - 2,469
Net income - - - 4,183 4,183
Distributions by merged company - - - (839) (839)
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BALANCES AT DECEMBER 31, 1996 18,689 $187 $44,567 $23,290 $68,044
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(5) RELATED PARTY TRANSACTIONS
Prior to the acquisition of CNSI on December 2, 1996 (see note 3), the Company
was a guarantor on a $3.0 million inventory wholesale financing line of credit
with AT&T Capital Corporation to CNSI. CNSI was majority owned by certain
officers of the Company. In connection with the acquisition, the Company
assumed CNSI's liability under this line of credit that had an outstanding
balance of approximately $1.1 million at December 2, 1996. Certain officers of
the Company had also guaranteed this line of credit and had indemnified the
Company against losses that might be incurred as a result of its guaranty. As a
result of the acquisition of CNSI by CIBER, the officers of CIBER were released
from the guarantees and indemnifications related to this line of credit. This
line of credit expires in October 1997 and is guaranteed by certain assets of
the Company. CNSI obtains inventory from various vendors who obtain payment
directly from AT&T Capital Corporation. CNSI then pays AT&T Capital Corporation
within 30 days of invoice. Amounts outstanding under this line of credit, which
totaled $1.6 million at December 31, 1996, are included in accounts payable on
the Company's balance sheet. The Company's Chairman had also guaranteed CNSI's
$2.5 million bank revolving line of credit. In connection with the acquisition,
the Company repaid and canceled CNSI's bank revolving line of credit, which had
an outstanding balance of $1.9 million at December 2, 1996. The Company also
repaid approximately $898,000 of notes payable by CNSI to the Company's Chairman
and his family.
(6) SUBSEQUENT EVENTS
In January and February 1997 the Company completed the sale of 610,577 shares
of its common stock, including 187,500 shares to cover the underwriters'
over-allotments, resulting in net proceeds of approximately $17.0 million.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE HEREIN. ALL CONSOLIDATED
FINANCIAL INFORMATION CONTAINED HEREIN HAS BEEN RESTATED TO GIVE RETROACTIVE
EFFECT TO THE NOVEMBER MERGERS OF TECHNOLOGY MANAGEMENT GROUP, INC. AND
TECHNICAL SUPPORT GROUP, INC., WHICH BUSINESS COMBINATIONS HAVE EACH BEEN
ACCOUNTED FOR AS A POOLING OF INTEREST. WITH THE EXCEPTION OF HISTORICAL
MATTERS AND STATEMENTS OF CURRENT STATUS, CERTAIN MATTERS DISCUSSED BELOW ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM TARGETS OR PROJECTED
RESULTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE,
AMONG OTHERS, GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION, THE
COMPANY'S ABILITY TO ATTRACT AND RETAIN QUALIFIED CONSULTANTS, DEPENDENCE ON
SIGNIFICANT RELATIONSHIPS AND THE ABSENCE OF LONG-TERM CONTRACTS, PROJECT RISKS,
THE COMPANY'S ABILITY TO EFFECTIVELY MANAGE A LARGE AND RAPIDLY CHANGING
BUSINESS, PRICING AND MARGIN PRESSURES, AND COMPETITION. PLEASE REFER TO A
DISCUSSION OF THESE AND OTHER FACTORS IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K AND OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS. THE COMPANY DISCLAIMS
ANY INTENT OR OBLIGATION TO UPDATE PUBLICLY THESE FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
OVERVIEW
The Company's revenues are generated from two services groups, the CIBER
Information Services group ("CIS") and the Strategic Technology Consulting
group ("STC"). CIS revenues in fiscal 1996 accounted for approximately 77%
of the Company's total revenues, while STC revenues accounted for the
remainder. CIS revenues are derived from the application software
development and maintenance services that are provided from the branch
offices of the CIS division and the Company's work in millennium date change
solutions under its "CIBR2000" division. STC revenues are derived from
services provided by the Company's wholly-owned subsidiaries, Spectrum
Technology Group, Inc. ("Spectrum"), Business Information Technology, Inc.
("BIT") and CIBER Network Services, Inc. ("CNSI"). Spectrum provides
management consulting level solutions to business problems, specifically in
the areas of data warehousing, modeling and enterprise architecture.
Spectrum also has responsibility for the Company's Microsoft-based technology
consulting, now known as Spectrum NT. BIT provides package software
implementation services, primarily for customers of PeopleSoft, Inc. CNSI
provides a wide range of local-area and wide-area network solutions, from
design and procurement to installation and maintenance with services
including Internet and intranet connectivity.
BUSINESS COMBINATIONS
Over the past several years, the Company has grown significantly through
mergers and acquisitions, as well as through internal growth. Growth from
internal operations (measured in terms of number of employees) has averaged
approximately 22% per year since fiscal 1992 and was 23% in fiscal 1996. The
Company's acquisitions involve the capitalization of intangible assets, which
intangible assets are generally amortized over two to 15 years for financial
reporting purposes and 15 years for tax purposes, provided that the
acquisition is not a tax-free reorganization. In the event of a tax-free
reorganization, the Company may not be able to amortize goodwill for income
tax purposes. In addition, the Company's consolidated financial statements
included the results of operations of each acquired business since the date
of acquisition. Mergers result in a one-time charge in the period in which
the transaction is completed for costs associated with the business
combination. In addition, selling, general and administrative expenses may
vary as a percentage of revenues depending on the fluctuations in the
selling, general and administrative expenses of merged companies, if any,
during any given period. The Company's consolidated financial statements are
restated for all periods prior to the merger to include the results of
operations, financial position and cash flows of the merged company.
9
Since September 30, 1996, the Company has completed the three following
business combinations:
TECHNOLOGY MANAGEMENT GROUP, INC. ("TMG"). On November 26, 1996, the Company
issued 242,179 shares of its common stock and granted options to purchase
163,007 shares of the Company's common stock (at an aggregate exercise price
of $547,000) in exchange for all of the outstanding common stock and the
cancellation of stock options of TMG. This business combination has been
accounted for as a pooling of interests.
TECHNICAL SUPPORT GROUP, INC. ("TSG"). On November 27, 1996, the Company
issued 370,376 shares of its common stock and assumed TSG's liabilities in
exchange for all of the assets of TSG. This business combination has been
accounted for as a pooling of interests.
See Note 2 of Notes to Consolidated Financial Statements for certain
statement of operations data that has been restated as a result of the
mergers of TMG and TSG.
CIBER NETWORK SERVICES, INC. ("CNSI"). On December 2, 1996, the Company
acquired CNSI for which it paid consideration of approximately $3.7 million,
consisting of 68,631 shares of the Company's common stock and approximately
$1.2 million in cash, In addition, the Company assumed approximately
$800,000 of net liabilities, resulting in a total purchase price of
approximately $4.5 million. Approximately $898,000 of liabilities assumed
were notes payable by CNSI to the Company's Chairman and members of his
family. This debt was paid in its entirety at closing. Additionally,
contingent consideration of up to $2.6 million will be paid to the sellers if
CNSI achieves certain performance objectives in each of the 12-month periods
ending October 31, 1997, 1998 and 1999. The contingent consideration, if
earned, will be payable at the sellers' option in the Company's common stock,
at the then prevailing market price, or in cash. This acquisition has been
accounted for as a purchase. The Company has record goodwill of
approximately $4.5 million, which will be amortized over 15 years. Any
contingent consideration paid will be accounted for as additional goodwill.
For income tax purposes this acquisition was a non-taxable transaction.
Had the acquisition of CNSI occurred at the beginning of the respective
periods, revenues would have been increased by approximately $18.3 million
and $8.1 million for the year ended June 30, 1996 and for the six months
ended December 31, 1996, respectively. The effects on pro forma net income
and pro forma income per common share would not have been material.
THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AS COMPARED TO THREE AND SIX
MONTHS ENDED DECEMBER 31, 1995
The Company's total revenues for the three months ended December 31, 1996
increased 39% to $59.7 million from $43.1 million for the quarter ended
December 31, 1995. For the three months ended December 31, 1996, CIS
revenues increased 32% to $44.1 million from $33.4 million for the same
quarter of last year and STC revenues increased 62% to $15.6 million from
$9.7 million for the same quarter of last year. CIS revenues accounted for
73.9% and 77.7% of total revenues for the three months ended December 31,
1996 and 1995, respectively.
The Company's total revenues for the six months ended December 31, 1996
increased 34% to $113.8 million from $85.0 million for the same period last
year. CIS revenues increased 30% to $85.0 million from $65.6 million for the
same period last year and STC revenues increased 48% to $28.7 million from
$19.4 million for the same period last year. CIS revenues accounted for
74.7% and 77.2% of total revenues for the six months ended December 31, 1996
and 1995, respectively.
The increase in CIS revenues was derived primarily from increases in hours
billed and, to a lesser extent, an increase in average billing rates. The
increase in hours billed was due primarily to internal growth in branch
offices and the inclusion, for all of fiscal 1997 to date, of the operations
of the Minnesota branch and the Columbus branch, which were acquired during
fiscal 1996. These two branches accounted for approximately $1.1 million and
$2.5 million of additional revenues for the three and six month periods ended
December 31, 1996, respectively, as compared to the corresponding periods in
the prior year. STC revenues have increased primarily due to increased volume
of customers implementing PeopleSoft, Inc. software, increased national
management consulting level sales, increased project responsibilities for
existing clients and the acquisitions of
10
Spectrum NT in July 1996 and CNSI in December 1996. Spectrum NT and CNSI
accounted for additional revenues of approximately $3.2 million and $4.0
million during the three and six month periods ended December 31, 1996,
respectively.
Salaries, wages and other direct costs, which consist primarily of consultant
wages, payroll taxes, direct benefits and related costs, were 68.8% of
revenues for the three months ended December 31, 1996 as compared to 69.2% of
revenues for the same quarter last year and were 68.1% of revenues for the
six months ended December 31, 1996 as compared to 68.2% of revenues for the
same period last year.
Selling, general and administrative expenses were 21.6% of revenues for the
three months ended December 31, 1996 compared to 22.5% of revenues for the
same quarter last year and were 22.0% of revenues for the six months ended
December 31, 1996 as compared to 23.2% of revenues for the same period last
year. This decrease in selling, general and administrative expenses as a
percentage of revenues was due primarily to the Company's ability to spread
fixed costs over greater revenues.
Amortization of intangible assets increased 33% to $607,000 for the three
months ended December 31, 1996 from $456,000 for same quarter last year and
increased 26% to $1.1 million for the six months ended December 31, 1996 from
$898,000 for the same period of last year. Amortization of intangibles
assets has increased primarily due to the approximately $9.3 million of
goodwill related to the Company's acquisitions of Spectrum NT (July 1996) and
CNSI (December 1996).
In connection with the mergers of Spectrum, TMG and TSG with the Company in
fiscal 1997, the Company has incurred merger costs of $596,000 and $1.2
million during the three and six month periods ending December 31, 1996.
Merger costs consist primarily of broker and professional fees. The Company
did not incur any merger costs during the six months ended December 31, 1995.
Net interest income was $216,000 and $439,000 for the three and six month
periods ended December 31, 1996, respectively, as compared to $80,000 and
$6,000 for the three and six month periods ended December 31, 1995,
respectively. As a result of the Company's November 1995 public sale of
common stock, the Company paid off its borrowings under its bank line of
credit and significantly increased its investment in interest earning cash
equivalent instruments. To the extent that the net proceeds from the sale of
common stock by the Company in January and February 1997 (see note 6 of Notes
to Consolidated Financial Statements) remain invested in short-term interest
bearing investments, interest income in future periods is expected to
increase.
The Company's effective tax rates were 49.5% and 8.5% for the three months
ended December 31, 1996 and 1995, respectively, and were 55.3% and 23.0% for
the six months ended December 31, 1996 and 1995, respectively. The
Company's fiscal 1997 to date effective tax rate is unusually high due to a
one-time charge of $1.2 million to income tax expense related to Spectrum's
termination of its S corporation status upon its merger with CIBER and a
one-time charge of $515,000 to income tax expense related to TSG's
termination of its S corporation status upon its merger with CIBER, and to a
lesser extent, nondeductible merger costs, which were partially offset by
nontaxable S corporation income. During the quarter ended December 31,
1995, Spectrum converted to an S corporation, and accordingly, recognized a
one-time tax benefit of $818,000. As a result of these one-time merger
related tax effects and merger costs, net income decreased to $2.4 million
for the three months ended December 31, 1996 from $2.9 million in the same
quarter last year and decreased to $4.2 million for the six months ended
December 31, 1996 from $4.9 million in the same period last year.
After the pro forma adjustment to income tax expense to reflect the exclusion
of the one-time income tax effects related to changes in the tax status of
certain merged companies and to impute income tax expense for S corporation
operations which were not subject to income taxes, the Company's pro forma
net income increased 42% to $2.8 million (4.7% of revenues) for the three
months ended December 31, 1996 from $2.0 million (4.6% of revenues) for the
three months ended December 31, 1995 and increased 39% to $5.5 million (4.8%
of revenues) for the six months ended December 31, 1996 from $3.9 million
(4.6% of revenues) for the same period last year.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $11.4 million and a current
ratio of 3.2:1 at December 31, 1996. It had total liabilities of $19.0
million versus total shareholders' equity of $68.0 million. Net cash
provided by operating activities was $1.5 million and $1.7 million for the
six months ended December 31, 1996 and 1995, respectively. Net income,
excluding noncash charges (primarily depreciation, amortization and deferred
income taxes) provided cash of $6.8 million and $5.7 million during the six
months ended December 31, 1996 and 1995, respectively. This was partially
offset by changes in operating assets and liabilities that used cash of $5.3
million and $4.0 million during the six months ended December 31, 1996 and
1995, respectively. Changes in operating assets and liabilities have used
significant amounts of cash primarily because the Company's accounts
receivable increased as a result of the Company's increase in revenues and
because of the Company income tax payments.
Investing activities used cash of $7.5 million and $1.6 million during the
six months ended December 31, 1996 and 1995, respectively. During the six
months ended December 31, 1996, the Company used $6.1 million in connection
with the acquisitions of CNSI and Spectrum NT, while during the six months
ended December 31, 1995, the Company used $956,000 for the acquisition of the
Rochester, Minnesota branch office.
Financing activities used cash of $2,000 during the six months ended December
31, 1996 versus providing cash of $14.1 million during the six months ended
December 31, 1995. During the six months ended December 31, 1996 and 1995,
the Company obtained net cash proceeds from the sale of common stock of $1.1
million and $19.5 million, respectively. During the six months ended
December 31, 1996, the Company recognized $1.7 million as a direct increase
to additional paid-in capital from the tax benefits resulting from the
exercise of stock options. This, together with $1.0 million of current tax
benefits resulting from the exercise of stock options which were accounted
for as deferred tax assets at June 30, 1996, reduced the Company's income
taxes payable, and provided cash of $2.7 million during the six months ended
December 31, 1996. The Company did not borrow under its $15 million
revolving bank line of credit during the six months ended December 31, 1996
and expects to renew this line of credit, which expires in April 1997, on
comparable terms. In connection with the Company's acquisition of CNSI, the
Company assumed CNSI's $1.9 million outstanding balance under a bank line of
credit and $1.1 million of notes payable, primarily due to the Company's
Chairman and his family. The Company repaid these debt obligations and
canceled CNSI's bank line of credit. During the six months ended December
31, 1995, the Company used cash of $5.5 million to eliminate its borrowings
under its lines of credit. Prior to its merger with the Company, TSG had
made distributions to its shareholders.
In connection with the Company's acquisition of CNSI, the Company assumed
CNSI liability under a $3.0 million inventory wholesale financing line of
credit with AT&T Capital Corporation. This line of credit expires in October
1997 and is guaranteed by certain assets of the Company. CNSI obtains
inventory from various vendors who obtain payment from directly AT&T Capital
Corporation. CNSI then pays AT&T Capital Corporation within 30 days of
invoice. Amounts outstanding under this line of credit, which totaled $1.6
million at December 31, 1996, are included in accounts payable on the
Company's balance sheet.
In January and February 1997 the Company completed the sale of 610,577 shares
of its common stock resulting in net proceeds of approximately $17.0 million
(net of estimated offering expenses of $1.3 million). The proceeds from the
sale of stock will be invested in short-term interest bearing investments
until such time they are required for other business purposes, including
working capital or business combinations.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of CIBER, Inc. held on October
29, 1996, the following matters were voted upon with the results as
indicated below.
1) Election of Directors
FOR AGAINST ABSTAIN
---------- ------- -------
Mac J. Slingerlend 13,962,170 1,113 166,119
James A. Rutherford 13,968,670 1,113 159,619
The terms of office as a director of Bobby G. Stevenson, James C.
Spira, Roy L. Burger, and Richard A. Montoni continued after the
meeting.
2) The amendment to the Company's certificate of incorporation to increase
the number of authorized shares of common stock from 20,000,000 to
40,000,000.
FOR AGAINST ABSTAIN NOT VOTED
---------- --------- ------- ---------
13,959,446 108,842 11,114 50,000
3) The increase in the number of shares of common stock reserved for
issuance pursuant to the Company's Equity Incentive Plan from 1,000,000
to 2,000,000.
FOR AGAINST ABSTAIN NOT VOTED
---------- --------- ------- ---------
10,444,277 2,457,394 21,176 1,206,555
4) The increase in the number of shares of common stock reserved for
issuance pursuant to the Company's Employee Stock Purchase Plan from
500,000 to 1,000,000.
FOR AGAINST ABSTAIN NOT VOTED
---------- --------- ------- ---------
12,834,607 34,162 13,598 1,247,035
5) The ratification of KPMG Peat Marwick LLP as the Company's independent
public accountants for the fiscal year ending June 30, 1997.
FOR AGAINST ABSTAIN
---------- ------- -------
14,108,985 9,435 10,982
13
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule
A Report on Form 8-K was filed on October 15, 1996 that provided
notice that Richard A. Montoni had agreed to join the Company as
Executive Vice President/Chief Financial Officer and as a director.
Mr. Montoni's employment commenced October 28, 1996.
A Report on Form 8-K was filed on December 12, 1996. The form 8-K
provided:
1) Consolidated financial statements of the Company, which have been
restated for the September 1996 merger of Spectrum Technology Group,
Inc. with the Company in a business combination accounted for as a
pooling of interests.
2) Notice of the completion of three business combinations since September
30, 1996.
3) Copies of the Employment Agreement between the Company and Mr. Montoni
and the salary continuation retirement plan for Mr. Montoni.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned there
unto duly authorized.
CIBER, INC.
(Registrant)
Date FEBRUARY 10, 1997 By /s/ MAC J. SLINGERLEND
----------------- -------------------------------------
Mac J. Slingerlend
President and Chief Operating Officer
Date FEBRUARY 10, 1997 By /s/ RICHARD A. MONTONI
----------------- -------------------------------------
Richard A. Montoni
Executive Vice President/Chief
Financial Officer
14